Marijuana’s New Marketplace

How Canada’s impending legalization of marijuana will impact an industry already operating under the table

JUSTIN SCOTT // MANAGING EDITOR

ILLUSTRATION BY PAMELLA PINARD

Although marijuana has been illegal in Canada since 1923, the law hasn’t stopped an entire industry from developing around the substance. For much of the 20th Century and the beginning of the 21st, the industry was an underground black market. However, over the past decade, British Columbia, with cities like Vancouver and Nelson, as well as other Canadian cities like Toronto, have seen the emergence of what many call a “grey market”. While marijuana is still illegal as a recreational drug, it was its medicinal usage that allowed dispensaries to open and become mainstays in Vancouver.

Because of this, there has been an ongoing nationwide debate as to what should be done about the substance and the dispensaries selling it. Then, in 2015, Canada elected Justin Trudeau as its leader. In his campaign, Trudeau promised to legalize the drug, and while it’s taken longer than most had hoped, this process is finally coming to fruition in July of this year.

But, with many businesses already operating in the marijuana market, more and more people are starting to wonder how legalization will affect those already involved in the industry.

The current grey market

Over the past few years, Vancouver has truly lived up to the nickname “Vansterdam.” Currently there are around 95 dispensaries in the city of Vancouver. Although, that number is only an estimate as new ones continue to open, while others are forced to close their doors. To put that number in perspective, there are 52 Tim Hortons’ in the same span of the city. Many of Vancouver’s dispensaries deal solely with customers with prescriptions for the plant. It’s no secret that others either make it exceptionally easy to walk in and obtain a “green card” or are willing to sell to customers without a prescription all together. The dispensaries sell anything from the marijuana plant to edibles, extracts and other THC infused goodies.

As shocking as it may be to see stores openly selling an illegal drug, the dispensaries are mostly allowed to operate without too much interference from law enforcement. However, that’s not to say that the current businesses go unbothered. “We have seen certain municipalities, like the city of Vancouver send repeated fines to dispensaries, and then threaten them with injunctions,” said the CEO of Cannabis Culture, Jeremiah Vandermeer, who is also the editor of the company’s magazine. Cannabis Culture, which operates multiple dispensaries in Vancouver, as well as locations in Ontario and Québec, have themselves received injunctions and numerous fines from the city of Vancouver.

However, Vancouver hasn’t seen anything like the city-wide crackdown that the Toronto Police Department conducted on their city’s dispensaries in the past.

Many believe the reason for Vancouver’s leniency is the knowledge that legalization is imminently impending. That being said, the city’s police did shutdown and arrest a large group of vendors in Robson Square in January, but those arrested were brazenly selling marijuana products in public. “The police department, including the RCMP, they’re stretched,” said the Capilano School of Business’ Department Chair Charlene Hill. “I think that most people, most Canadians, want them [law enforcement] to pay attention to the person that’s shot down in front of them, or assaults, or fraud or things that are actually impacting people. And that’s the trouble when something is illegal and isn’t actually causing any harm, we tend to look the other way.”

Looking the other way has been the general attitude towards many of the city’s dispensaries, but it hasn’t always been that easy… Matt, who asked for his last name to remain private, owns one of the world’s largest seed banks, BC Bud Depot (BCBD). “I’ve been growing weed since I was 18, and breeding,” he explained. “We started off sort of as a provincial growing collective, sharing clones and breeding.”

Matt, who’s been a part of the marijuana industry for nearly 20 years, has seen it transition from an underground market to what it is today. While BCBD started as a local seed bank, a fateful competition shot them into the big leagues. In 2004 the company’s strain, God Bud, won the Cannabis Cup. “Everyone in the world wanted our seeds from that point on,” Matt said. Since then, BCBD has become a worldwide operation.

According to Matt, BCBD is “the top seed bank in Canada for sure, top three in North America, top five worldwide.” In the past, BCBD opened offices in both Amsterdam and Spain, both for business purpose and legal ones due to the laws in Canada. For Matt though, he knew it was just a matter of time until the prohibition ended. “We were under no illusion that the ice wouldn’t break at some point. We were just doing what we do best, we weren’t trying to strategically position our self, we were just waiting for it to happen,” he said.

“Each province will enact their own laws… The current plan will see three points of sale for marijuana including government operated stores, privately operated stores and online sales”

Illustration by Pamella Pinard

Legalization

According to the Trudeau government, all of this will be in the past come July. But with such a strong market already in place, what will the new laws mean for those already active in the industry?

Each province will enact their own laws. BC has opted to pursue a system very similar to that in which liquor is sold and will go through the province’s Liquor Distribution Branch (LDB). The current plan will see three points of sale for marijuana including government operated stores, privately operated stores and online sales. There has been talk of selling marijuana through the current BC Liquor Stores, but the province opted to open separate retail locations, at least in large cities. “We are in the early stages of determining what our cannabis retail operations will look like,” said Kate Bilney, the LDB’s Communications Coordinator. “Opening a network of government-run cannabis stores across the province won’t happen overnight,” she added.

The good news for the current businesses is that the province will be issuing private business licenses to retailers, so active dispensaries can apply for one in hopes of continuing their operation. Many current operators were worried about this, as past examples of this process had not been so kind to those in their shoes. For example, when Washington state legalized recreational marijuana in 2014, of the more than 1,500 medical marijuana dispensaries that had been open before, only 222 received retail licenses – the rest were forced to close.

The new system will also impact how the marijuana is produced, distributed and what will be available.

Currently, most dispensaries have relationships with certain growers and producers of edibles, concentrates and other consumables who they buy their products from, but the new laws will put an end to this. “As the wholesale distributor of non-medical cannabis, LDB will purchase non-medical cannabis from federally licensed producers and distribute this product to both the public and private retail stores across the province,” Bilney explained via email. Additionally, stores will only be allowed to sell marijuana, seeds and “cannabis oils that comply with federal requirements,” Bilney said. This means no more edibles or other alternative forms of consumption will be available.

As much as the province and nation are taking a step forward in terms of the sale of marijuana, they also seem to be taking a step back in terms of what will be offered. What then will this mean for the market?

The Future

As of now, the reception to the new system from those involved in the market is mixed. Matt of BCBD said his reaction was “only super positive.” In fact, while he can’t yet say which company, BCBD is getting acquired by what Matt called one of the industry’s “major players.” “My friends too,” he said, “DNA Genetics, they signed a deal with Canopy [Growth Corporation], my buddy Scott at Rare Dankness, they signed a deal with Maricann,” he added. Both Canopy and Maricann are government licensed producers [LP’s]. Although such acquisitions are a positive sign for the marijuana economy, they are pointing to the industry going in a direction that many are concerned about. “

I’m definitely worried about the big corporations,” Vandermeer said. A sentiment shared by Hill. “BC better have enough opportunity for everyone,” she said. “What people don’t understand about small business, is that except for the government, small business employs more than anybody else. So, it’s not just affecting the person that goes and buys something, it’s affecting the person that’s making a living from selling that. And I’m really on board with there being opportunities for small business.”

One thing Matt, Vandermeer and Hill all agree on is that the market shouldn’t be monopolized. They all realize that large corporations will be involved in the market, but they hope that there will still be room for the smaller retailers. “We in Canada are coming from a different place, a more inclusive place. And now that the provincial governments are going to have a hand in it, it’s our responsibility to make sure that everybody gets a shot at being a part of this,” Hill said.

Matt however, is confident that in BC at least, monopolization of the industry will be avoided. “I think British Columbia is kind of like the Kitsilano of Canada,” he said. “We’re really fortunate that way. I could see [monopolization] happening in Ontario and Manitoba and all these, you know, the bible belt provinces so to speak, but in BC we’re lucky.”

Illustration by Pamella Pinard

Vandermeer however, is weary of the involvement. “I’m not sure why the government wants to be in the drug dealing business,” he said. “Why is it that these politicians and officials who have been so against cannabis for so many years telling us how dangerous it is, lying to us, propagandizing against cannabis, telling us it’s dangerous, telling us about this reefer madness that comes from the politicians for so many years, and they criminalized our community, put harmless people in prison and in fact, some people have died because of the drug war, and now these politicians, the same ones that have been criminalizing us, want to turn around and be the only ones to sell it to us and make a profit from it, that’s wrong. It’s completely hypocritical and it doesn’t make sense,” he continued.

The Cannabis Culture CEO also takes issue with the manner in which the government has monopolized the distribution process. “We need to have our mom and pop growers and experts who have been growing marijuana and producing our medicine and products for so long to be allowed to continue to do that, and we need them to be licensed,” he said.

The way most dispensaries operate now allows them to bring in fresh marijuana from their growers, display it openly and allow their customers to interact with it by observing and smelling it before deciding what strain to purchase. The new system however, will limit the available strains to those produced by licensed growers and distributed solely by the government, which Vandermeer believes will sacrifice quality. “I’m definitely worried about the big corporations being the only ones allowed to provide cannabis,” he said. “These licensed producers, at least so far, do not have respect for the plants that they need to have and do not produce a quality product. Most of the LP stuff, in fact all of the LP stuff that I’ve tried has been terrible and it doesn’t seem to be getting any better.”

Additionally, Vandermeer is worried about the freshness of the product. “We need dispensaries that you can walk into and you can look at the marijuana, and smell the marijuana and take it out of the package. Not prepackaged strains of marijuana that come from some factory and are sitting in a warehouse for months before they get to the public, that is not suitable, that is not adequate,” he said. Vandermeer sees marijuana more like produce than substances like alcohol or tobacco, meaning it’s freshness and quality is of the utmost importance.

Another topic of contention is what will happen to prices. BC already has relatively low prices compared to other major marijuana markets, but many are unsure of what will happen to the prices once legalization takes place – including the government. “Pricing has not yet been determined. These discussions are underway, as the Province considers what the taxation and mark-up structure will look like,” Bilney explained.

According to the Washington State Liquor and Cannabis Board, when the state first legalized recreational Marijuana in July of 2014, the average retail gram cost around $22.50 USD, which has since dropped to $9.32 USD as of March 2016. Although there are no official numbers on the average price per gram in BC, dispensaries often charge around $10. The fear many have, including Vandermeer, is that government’s taxation will drive prices up. In Washington for example, while the average price of a gram was $9.32 USD two years ago, the average price of a wholesale gram, in other words what the dispensaries pay, was $2.99 USD. The price difference, while undoubtedly there to make a profit and cover operating costs, is also due to the high taxation on the product.

So, as much as prohibition is ending and progress is being made, it appears there will still be a long way to go. The government’s extreme involvement, while to be expected, is causing skepticism. “I don’t think they know what they’re doing,” Hill whispered in the halls of the Business Department’s offices in the Cedar building. Hill’s main concern is that the retail market is a fair playing field, allowing the “mom and pop shops” a fair opportunity.

Vandermeer shares this concern, along with many others. Generally, he hopes to eventually see a free market, with less government involvement, that would largely mirror the current industry minus the persecution. “Unless they legalize what’s already there and the black market that’s existed for so long, then there’s going to continue to be a black market, because nobody wants to buy crappy pot from the government,” he said, adding, “a free cannabis market, that’s the only way to make things fair.”